Canadian e-commerce platform Shopify is forecasting its slowest quarterly revenue growth in two years due to uncertain economic conditions and weak consumer spending. This has led to a nearly 20% drop in its U.S. shares in early trading Wednesday. Despite e-commerce growth normalizing after the pandemic, consumers are cutting costs, putting Shopify at a disadvantage despite price hikes and new AI-based tools. The company’s core clientele of small and medium-sized businesses (SMBs) have been hit hard by inflation, adding to the pressure on Shopify.
Shopify expects second-quarter revenue to grow at a high-teens percentage rate, disappointing investors who were used to average growth of about 26% over the past few quarters. Analysts estimated that current-quarter revenue growth would be 19.35%. The company also anticipates that operating expenses will increase at a low-to-mid-single digit percentage rate for the second quarter, in contrast to a 4% decline in the first three months of the year. The results included the impact of selling its logistics arm to freight forwarder Flexport.
In its latest quarter, Shopify reported a loss as revenue increased 23% compared to the previous year. The e-commerce software company reported a net loss of US$273 million or 21 cents US per diluted share for the quarter ended March 31. This is a significant difference from a profit of US$68 million or five cents US per diluted share in the same quarter last year. Revenue for the quarter totaled US$1.86 billion, up from US$1.51 billion in the first quarter of the previous year. These results were reported in U.S. dollars.
Shopify’s challenges come at a time when the e-commerce industry is facing normalization after the pandemic-induced boom. With consumers looking to save money and small businesses struggling due to inflation, Shopify is feeling the pressure to maintain growth and profitability. Despite introducing new tools and increasing prices, the company is still facing challenges in meeting investor expectations. The sale of its logistics arm and the impact on revenue and expenses are also contributing to the company’s performance in the marketplace.
Overall, Shopify’s growth forecast is not meeting investor expectations, leading to a drop in its U.S. shares. The company’s core SMB clientele are struggling in the face of inflation and weak consumer spending, further impacting Shopify’s ability to maintain growth and profitability. Despite these challenges, Shopify remains a key player in the e-commerce industry, and its performance will continue to be closely monitored for any signs of recovery or further decline. With the economy uncertain and consumer spending tepid, Shopify’s ability to navigate these challenges will be crucial for its future success.
